Real estate issues in the 2018 BC Budget

On February 20, 2018 the BC Government released the 2018 BC Budget[1]. The budget introduces property tax changes and new legislative measures to improve housing affordability and enforce better tax compliance. The budget will have an effect on future contemplated transactions and current transactions that have not yet closed. Urgent action may be required to avoid unexpected adverse financial consequences.

Here are the key points:

Increase and Expansion of Foreign Buyers Tax

a) Metro Vancouver increase

The Foreign Buyers Tax (“FBT”) rate applicable in Metro Vancouver will increase from 15% to 20% effective immediately. This will be applicable to the transfer of any residential property located in Metro Vancouver registered on or after February 21, 2018.

b) Expanded area and transitional rules

The FBT, at its new rate of 20%, is expanded to apply to the Capital Regional District, Fraser Valley Regional District, Regional District of Central Okanagan, and the Regional District of Nanaimo, in addition to Metro Vancouver.

There are a number of transitional rules specifically for these newly-added regions:

i) Purchase contracts entered into before February 21, 2018 are exempt provided they close prior to May 19, 2018. However, an agreement signed prior to February 21 but assigned after February 20 to a foreign buyer will NOT be exempt.

Any purchaser of property under a contract signed before February 21, 2018 that has a closing date on or after May 19, 2018 should consider requesting an amendment of the contract to move the closing date to be earlier than May 19, 2018 in order to close the purchase before the new tax comes into effect.

ii) The FBT will be inapplicable to the following transaction types (note that these are quoted verbatim; several of the terms appear insufficiently concise or detailed and will require clarification)[2]:

The property transfer is subject to a court order dated on or before February 20, 2018;

The property transfer is subject to an Order Nisi of Foreclosure dated on or before February 20, 2018;

The property transfer is subject to a separation agreement which was signed on or before February 20, 2018;

The property transfer is from the personal representative of a deceased’s estate to the beneficiary and the death of the deceased occurred on or before February 20, 2018; and

The property transfer is to a surviving joint tenant when the death of the deceased occurred on or before February 20, 2018.

Increase in the Property Transfer Tax – Homes Valued Over $3 Million

Effective February 21, 2018, Property Transfer Tax on the portion of the fair market value of residential properties over $3 million increased from 3% to 5%. Owners transferring residential properties valued greater than $3 million must complete and submit the new Property Transfer Tax Calculator for Residential Property over $3 million on closing.

Tax Compliance and Enforcement

a) Pre-sale assignments

To improve compliance of tax regulations catching pre-sale assignments, the BC Government intends to introduce legislative changes to require developers to collect and report comprehensive information about pre-sales assignments. Such information will be shared with the federal and provincial tax authorities.

b) Beneficial owners

To combat “hidden” ownership, the BC Government will establish a registry of beneficial ownership in B.C. that will be publically available and administered by the Land Title Survey Authority. Additionally, BC corporations will be required to hold accurate and updated information on beneficial ownership of shareholdings in their own records office. Such information will be shared with the federal and provincial tax authorities.

Other Issues

a) Introduction of the Speculation Tax

The BC Government introduced the Speculation Tax: this will not take effect until fall of 2018. but it should be considered in one’s planning relating to secondary properties. The Speculation Tax will be an annual property tax that targets the residential properties of both domestic and foreign speculators, including satellite families, who do not pay income tax in BC. The tax rate will be 0.5% of the taxable assessed value of the property for 2018 tax year and 2% thereafter. The Speculation Tax applies to Metro Vancouver, Fraser Valley, Capital and Nanaimo Regional Districts, and the municipalities of Kelowna and West Kelowna. Primary residences and long-term rentals will generally be exempt; however, secondary properties will be subject to the tax.

b) Increase in School Tax rate

Effective in 2019, the portion of the assessed value of residential properties over $3 million will be subject to an increased School Tax rate. The additional tax rate is 0.2% on the portion assessed between $3 million and 4 million, and 0.4% on the portion assessed over $4 million. Apartment properties may be exempt.

The BC Government will require AirBnB to collect the 8% PST and up to 3% MRDT on all AirBnB rentals in BC. Details will be released when available.

Takeaways

These measures are parts of the BC Government plan to address housing affordability and update the housing tax regime in BC. Many details on when and how the proposed changes will take effect are expected to be released in the near future. Nonetheless, the changes introduced may greatly impact your real estate planning and you may need to take urgent action now.